governance, political economy, institutional development and economic regulation

India formally ratified the Paris climate agreement on Sunday, notwithstanding that Donald Trump trashed global warming, last week, as a hoax and efforts to control it as expensive and ineffective.

The United States contributes around 16 per cent of world carbon emissions. Truculence in its approach to manage global warming can scuttle the efforts of the rest of the world. Mr Trump’s cavalier approach to climate change can only be explained by his belief that a slowing US economy should not be the one which pays to set the world’s climate right.This abdication of international leadership appears to resonate with his not inconsiderable supporters.

Clearly, the expectation is that China, which contributes 28 per cent of global emissions, needs to step up to the plate of international burden-sharing. China is now the world’s second largest economy. Despite the slowdown it is growing at three times the rate of the American economy. That is reason enough for higher expectations from it to play the role of a global leader.

Photo credit: huffingtonpost.com

India is also a fast-growing economy. In the long term we may be where China is today. But not for a while yet. We are just one-fifth of the Chinese economy. Our emissions are just six per cent of world emissions. Our global ambitions should be commensurate with our constraints. This is why, unlike China, we have not committed to cap our emissions at a predetermined level.

Paris – the agree to disagree concord

Under the Paris climate agreement countries have agreed to disagree. It is now left to individual nations to exercise “strategic direction” in developing their future energy profile and “tactical restraint” in energy consumption.The decentralised responsibility is welcome but worrisome on two counts. First, countries which are too small to make a difference but which will face the wrath of global warming like island countries now have to depend not on covenant but on the generosity of others to survive. Second poor, technologically deficient countries will now pay more to mitigate global warming since there are no pressing compulsions for the rich to change consumption patterns or develop carbon benign technology for domestic use.

India’s challenge is to remain green

Laurie Baker’s characteristic green building in Kerala

Altogether 37 per cent of India’s energy consumption is non-fossil fuel based. This is fairly similar to the world non-fossil fuel energy consumption of 33 per cent. But the big difference is that bio energy accounts for only two per cent of the world’s green energy consumption, unlike in India, where biomass accounts for 92 per cent of the renewable energy used.Hydro power and new renewables — solar and wind- account for just six per cent and nuclear for two per cent of our green energy profile.

The challenge for India is to ensure that as incomes grow, poor consumers – who use non commercial biomass sources today like dung, firewood and agricultural residue for heating and cooking – should graduate to new renewables like solar and wind, rather than go down the fossil fuel route, as the OECD countries have done. This challenge is principally for the government, not consumers. Consumers typically want energy services — cooling, heating, cooking and transport. They don’t really care about the fuel that provides these services. It is for the government to put in place the incentives which drive energy suppliers to provide renewable energy services.Energy users are underserved in India particularly in dispersed habitations. This presents the opportunity to use renewables to bridge the gap in innovative ways.

To be sure, domestic compulsions like smog do compel us to clean our energy profile. India already has economic incentives in place for this. High energy prices induce energy efficiency in industry. High taxes on petrol and diesel are expected to result in frugal consumption for personal transport. Scarce public funds are allocated to subsidise renewable electricity. Investment in public transport is being stepped up to substitute high energy-intensity personal vehicles. Rail freight has been reduced to stem the shift to the more energy-intensive road transport. Bulk public purchase and supply of low-energy intensive LED bulbs help manage domestic electricity peak load. The path to carbon sustainability is fortunately closely aligned to the the path to make our economy competitive by squeezing out the fat along he supply chain. But gains in the efficiency with which energy services are delivered can only mitigate, at best, around 20 percent of our additional energy needs.

The compulsions to consume more energy services are stark.India’s per capita energy consumption is just 0.6 tons of oil equivalent (toe) versus global per capita consumption of 1.9 toe. India will likely consume four times the energy it does today to provide welfare enhancing energy services to its citizens. Similar compulsions face most developing countries in South Asia and Africa.Only a technological revolution in clean energy and in energy storage systems can delink the growth led increase in energy consumption from unsustainable levels of carbon emissions.

Target renewable energy services

Setting up clunky publicly owned entities to research and transfer renewable technology to industry is not the way to go. Backing selected private firms willing to invest in renewables in anticipation of an assured domestic market is also tough. We don’t have the democratic space in India, unlike South Korea, to back industrial winners.Transparent subsidies on the “viability gap funding” template will suit the private sector best to innovate, implement and increase the consumption of renewable energy. Shifting the subsidy from energy generation to the provision of energy services can enlarge the pool of potential investors whilst retaining the objectives of efficiency and effectiveness in subsidy provision.

Prime Minister Modi flags off a solar bus service for MPs

Link green subsidies explicitly to revenue – social cost based levies on fossil fuel and a green cess

India’s clean energy strategy is built around the principle of minimising environmental damage whilst maximising economic growth. But the implementation of good principles also needs accurate and timely monitoring mechanisms to ensure that progress is along the desired trajectories. One such mechanism is to monitor the social cost of our fossil energy consumption and to use the data for fiscal allocations. The Arvind Subramanian report on pulses has suggested the inclusion of social cost, with respect to water intensity, while determining the maximum support price of agricultural food products, to ensure that subsidies do not deplete our water reserves. This is a good way of allocating public resources.

Social cost filter for resource allocation

If a social cost filter is adopted for allocating finances, public investment in the railways and in coastal shipping would surely trump investment on road transport. This is also a good mechanism for making users pay differentially for the energy they use. Charging more from those who use electricity at peak time is justifiable beyond the additional financial cost it imposes, to being an affirmation of commitment to going green. Habitats, offices and homes all impose social costs and must be taxed in proportion to the extent of their footprint. This “green tax” should be used to directly subsidise green energy and energy conservation.

A green balance sheet – green tax revenue and expenditure

The government should consider including a green fiscal resources allocation and tax collection balance sheet along with the annual financial budget. This would provide, at a glance, the revenues collected by taxing fossil fuel and the capital allocated for green energy initiatives. Similar green fiscal resource balance sheets at the state and municipality level could feed into a green national fiscal framework.

India has traditionally punched above its weight in international affairs. Preserving the global commons is a lofty goal; an opportunity to upstage the international economic Goliaths and to improve well-being at home.

Laurence Wilfred “Laurie” Baker 1917-2007 – architect & practioner of the science of living comfortably with nature. Seen here with his wife Elizabeth, in their home in Thiruvananthapuram, Kerala.

Adapted from the authors article in Asian Age October 4, 2016 http://www.asianage.com/columnists/green-taxes-cleaner-india-600